Wednesday, August 24, 2011

Keynes on Germany in the 1930s

Robert Skidelsky has a revealing description of Keynes’s disgust at Nazi Germany:

“… by October 1934 three million workers had been reemployed in Germany over two years, half the previous total of unemployed, and Keynes’s silence on Hitler’s New Deal was deafening. The reason is that Hitler’s recovery programme was too mixed up with imperialist aims and terroristic methods for it to hold any attraction for him. Keynes was trying to save liberal society, not destroy it. He would give no comfort to its enemies. Garraty has noted the similarities between Hitler’s and Roosevelt’s programmes; even their rhetoric, with its invocation of the war spirit, sounded the same.

But, whereas Roosevelt was the scion of the American ruling class, Hitler was nurtured on the hatreds of Central Europe and the agony of Germany’s defeat; for him war was the purpose, not the symbol, of the effort to restore Germany’s industrial might.

Keynes understood this from the start. ‘Germany is at the mercy of unchained irresponsibles,’ he wrote on 15 July 1933. And on 19 September: ‘Broken in body and spirit, [they] seek escape in a return backwards to the modes and manners of the Middle Ages, if not of Odin.’ Anti-semitic though Keynes occasionally seems by the standards of out day, he was outraged by the officially sponsored outbreaks of Jew-baiting in Nazi Germany. On 25 August 1933, he wrote to Professor Spiethoff, who was arranging the publication of a German translation of ‘National Self-Sufficiency’:

Forgive me for my words about barbarism. But that word rightly indicates the effect of recent events in Germany on all of us here …. It is many generations in our judgement since such disgraceful events have occurred in any country pretending to call itself civilised ... If you tell me that these events have taken place, not by force, but as an expression of the general will … that in our view would make some of the persecutions and outrages of which we hear … ten times more horrible.

When Germany withdrew from the World Disarmament Conference on 14 October, he wrote to Lydia, ‘Everyone must soon be faced with the alternative of simply allowing Germany to rearm when she likes, or of attacking her as soon as she begins to do so. Hideous!’ Keynes never went to look at the ‘new’ Germany. Carl Melchior, subjected to anti-semitic attack, died in December 1933. When the Mayor of Hamburg visited King’s College in 1934 and invited Keynes over, he replied, ‘After the death of my friend . . . there is nothing left that could attract me to Hamburg.’” (Skidelsky 1992: 486).

Hitler had come to power on 30 January, 1933. What is interesting is that already by August 1933 Keynes condemned Nazi Germany as barbarism, long before the horrors of Kristallnacht (November 9–10, 1938) or Hitler’s international aggression.

7 comments:

"Nevertheless the theory of output as a whole, which is what the following book purports to provide, is more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output under conditions of free competition and a large measure of laissez-faire." - JM Keynes, preface to German edition of "The General Theory."

Keynes admits here that his economic methodology is more suited to totalitarian societies than to free societies.

"I conceive, therefore, that a somewhat comprehensive socialisation ofinvestment will prove the only means of securing an approximation to full employment." - JM Keynes, ch 24, "The General Theory."

Keynes admits here that his economics leads to calling for the government to take over a "somewhat"-sized portion of the investment market, that is, he advocated for a top-down government plan for interference with the allocation of resources, and not merely aggregate demand management completely divorced from resource allocation.

Keynes was also an asshole. During a 1934 dinner in the U.S., after one economist carefully removed a towel from a stack to dry his hands, Mr. Keynes swept the whole pile of towels on the floor and crumpled them up, explaining that his way of using towels did more to stimulate employment among restaurant workers.

"Many people approve of the methods of Fascism, even though its economic program is altogether antiliberal and its policy completely interventionist, because it is far from practicing the senseless and unrestrained destructionism that has stamped the Communists as the archenemies of civilization. Still others, in full knowledge of the evil that Fascist economic policy brings with it, view Fascism, in comparison with Bolshevism and Sovietism, as at least the lesser evil. For the majority of its public and secret supporters and admirers, however, its appeal consists precisely in the violence of its methods." - Ludwig von Mises, pg 49, "Liberalism"

"B-b-b-but Mises advised Dollfuss!" in 3, 2, 1...

"Given the opposition Mises encountered at the university, he looked for steady employment in the Handelskammer, the semi-official Chamber of Commerce. After 1920, the Austrian government was mostly in the hands of the Christian Social Party, a Clerical-Conservative party, which eventually fathered the dictatorship of Dollfuss and his Patriotic Front. This party had to fight the international socialists, and, later, the National Socialists. Mises, as an agnostic and a genuine Liberal, had no innate enthusiasm for the Christian Socials, but, judging Austria’s precarious situation dispassionately, knew that a decent, responsible man had to collaborate with that government." - Erik Ritter von Kuehnelt-Leddihn, "The Cultural Background of Ludwig von Mises."

""Nevertheless the theory of output as a whole, which is what the following book purports to provide, ... Keynes admits here that his economic methodology is more suited to totalitarian societies than to free societies."

As for Keynes's call for "socialisation ofinvestment", this essentially means large scale public works during downturns - hardly a call for authoritarianism or fascism.

"Mises, as an agnostic and a genuine Liberal, had no innate enthusiasm for the Christian Socials, but, judging Austria’s precarious situation dispassionately, knew that a decent, responsible man had to collaborate with that government.

You agree with my assessment. I didn't claim Keynes said his theory is a policy prescription, I said his economic methodology is more suited to a totalitarian society than a laissez-faire society.

You even quoted Wattel as saying the exact same thing:

"What Keynes says is that his macroeconomic theory of output as a whole is more easily adapted to a totalitarian state than is classical microeconomic theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire."

Hahahaha, there is a reason why you're known as Lord "auto-troll" Keynes. You don't even bother understanding the arguments first before you dip into your laundry list of pre-formatted responses.

You are not a thinker, you're a robot who spits out pre-made comments.

As for Keynes's call for "socialisation ofinvestment", this essentially means large scale public works during downturns - hardly a call for authoritarianism or fascism.

False. He means government taking control over a portion of the investment market, NOT merely spending money on roads.

He writes:

"In some other respects the foregoing theory is moderately conservative in its implications. For whilst it indicates the vital importance of establishing certain central controls in matters which are now left in the main to individual initiative, there are wide fields of activity which are unaffected. The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways. Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment." - JM Keynes, ch 24, "The General Theory."

What Keynes has in mind when he says "socialization of investment" follows from his other fallacious beliefs, including the "marginal efficiency of capital," "marginal propensity to consume," and "liquidity trap" doctrines. He believed that a free market would not be able to reduce widespread unemployment, especially in a depression, on the basis that typically the central bank is holding interest rates too low to make investment worthwhile (less than 2% and people will allegedly hoard money), any further reduction in wage rates will allegedly reduce profits further (which it allegedly can't do), and that more savings and net investment will also reduce profits.

Keynes fallaciously held that the free market is incapable of sustaining full employment, and that is why he called for the state to partially take over investment. It is NOT because he held that the government should spend money to provide roads and bridges. It is because of his attacks on the free market.

"Mises, as an agnostic and a genuine Liberal, had no innate enthusiasm for the Christian Socials, but, judging Austria’s precarious situation dispassionately, knew that a decent, responsible man had to collaborate with that government.

Ah, yes, patriotism

So you admit that Mises was not an apologist for fascism, but someone who didn't want his country to be taken over by imperialist communists, and held fascism to be the lesser of two evils.

"He means government taking control over a portion of the investment market, NOT merely spending money on roads."

Public infrastructure projects DO involve the "socialisation of investment" as Keynes envisaged it:

"By ‘socialisation of investment’ Keynes did not mean nationalisation. Socialisation of investment need not exclude ‘all manner of compromise and devices by which public authority will co-operate with private initiative’ (Keynes, 1973A, p. 378). This single throw-away line in the General Theory reflects Keynes's thinking on ‘public-private partnerships’, which came out of his involvement in Liberal politics in the 1920s (Skidelsky, 1992, chs 7 and 8). In essence, he sought to expand the public-utility component of investment to give greater stability to the investment function. Today, he would have seen the big institutional investors like pension funds as a major support for stability. A guaranteed stream of investment would reduce fluctuations to modest dimensions, which could be readily controlled, if so wished, by speeding up or slowing down elements in the investment programme. Such investment would not necessarily be profit-maximising. But provided it yielded positive returns, there would be a gain. If markets had perfect information, public investment would be inefficient. But with uncertainty, there is a gain as against having no state investment at all, because of the losses due to uncertainty."

Public infrastructure projects DO involve the "socialisation of investment" as Keynes envisaged it:

http://www.skidelskyr.com/site/article/the-relevance-of-keynes/

What Skidelsky wrote is a misreading of what Keynes wrote and a misrepresentation of what critics of Keynes argue.

First, "socialization of investment". Critics of Keynes are not saying "nationalization" of investment a la the Soviet system. They are saying, correctly, government taking control over a portion of the investment market, meaning the government imposes its own directional control on where and how much money is "invested", as opposed to investment being FULLY directed in the market, by individuals who earned the money through exchange.

For Skidelsky to respond to this by saying "Keynes didn't want investment to be nationalized, since he wrote that it "need not exclude all manner of compromise and devices by which public authority will co-operate with private initiative," is to grossly misunderstand the criticism of socialization of investment.

The criticism is that Keynes wanted the government to direct investment at all, and that he refused to accept that investment should be 100% directed by the market process of exchange. THAT'S the criticism of "socialization of investment." Keynes wanted the government to direct (a portion of) society's investment.

That public spending on roads and bridges satisfies the criteria of what Keynes meant by "socialization of investment", does not mean that Keynes only wanted roads and bridges to be directed by the state in terms of investment. Keynes made his argument much more broadly. He wanted the state to control investment TO WHATEVER EXTENT, and IN ANY INDUSTRY, that will enable "full employment." He wanted the state to always retain final control over how much of the investment market it will take over, because he doubted that bank policy alone (i.e. inflation) will be "enough" for full employment. If the state finances roads, bridges, schools, etc, etc, etc, and yet unemployment persists, then Keynes held that the government should "invest", i.e. spend, MORE, and continue to "socialize investment" more until full employment is had. Even if "socialization of investment" destroys jobs, and destroys economic productivity, it doesn't matter. Keep spending and spending and spending.

Skidelsky's apology is weak, fails to elicit any understanding of Keynes' own writings, and combines his misunderstanding of Keynes with his own Post Keynesian garbage on uncertainty.

"During a 1934 dinner in the U.S., after one economist carefully removed a towel from a stack to dry his hands, Mr. Keynes swept the whole pile of towels on the floor and crumpled them up, explaining that his way of using towels did more to stimulate employment among restaurant workers."Theres not a single citation for that little anecdote. I've traced it back to http://online.wsj.com/article/SB123137373330762769.html